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can, that the partnership is not insolvent or has not committed an act of bankruptcy, and to make all defenses which any debtor proceeded against is entitled to take by the provisions of the act.

(Italics mine.) The Supreme Court had an order similar to this as applied to the bankrupt act of 1867 (14 Stat. 517), and it was held by the lower courts that it was not necessary to allege an act of bankruptcy by a partnership where the petition was filed by one of the partners; but the Supreme Court speaking of the effect of this order in the case of Medsker v. Bonebrake, 108 U. S. 66, 2 Sup. Ct. 351, 27 L. Ed. 654, says that, where one partner was brought in under the petition of the other partner, it was a case of involuntary bankruptcy as to such partners so brought in.

If it is an involuntary proceeding, must not the statements of fact or charges contained in the involuntary form be used?

Now there is this difference between the act of 1867 and the act of 1898 in reference to partnerships, in that the act of 1898 confers the right to declare the partnership bankrupt as a separate entity, which the act of 1867 did not do.

If there was no power to declare the firm bankrupt under the act of 1867, then there was no necessity to allege the commission of an act of bankruptcy by it.

In the case of In re Forbes (D. C.) 128 Fed. 137, it is said that it is not necessary to allege an act of bankruptcy in the petition by one partner against the firm, but is necessary to allege insolvency. The following language is used: "Neither the act of July 1, 1898,

nor the act of March 2, 1867, nor the general practice of courts of bankruptcy under either act, has required an allegation of an act of bankruptcy in a petition filed by one partner to bring into bankruptcy his partnership and partners.

"The act of 1898 does not require an allegation of insolvency, though the allegation that the partners are unable to pay their debts, which is contained in form No. 2, promulgated by the Supreme Court under authority of the act, comes almost to the same thing. On the other hand, general order No. 8 under the act of 1898 and general order 18 of the act of 1867 alike have provided that a partner refusing to join in a partnership petition filed by his copartner is entitled to resist the prayer of the petition as if it had been filed by a creditor, and 'shall have the right

to make proof if he can that the partnership is not insolvent or has not committed an act of bankruptcy.' The general order thus appears to provide that the nonassenting partner may disprove that which the petitioning partner need not allege."

The court seems to overlook the fact that the general orders are as effective as the provisions of the act itself, and further that form No. 2, providing for a voluntary petition by partners, contemplated that it is to be signed by all of the partners. It was not prepared for nor intended to be used where one of the partners objected. The Supreme Court in form No. 1 for a voluntary petition to be used by an individual used the same language as in the voluntary petition to be used by partners, namely, “That he owes debts which he is unable to pay in full." No direct allegation of insolvency is used, and no allegation of an act of bankruptcy.

Form No. 3, the creditor's petition, contains the allegation:

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(274 F.) “And your petitioners further represent that said is insolvent, and that within four months next preceding the date of this petition, the said

committed an act of bankruptcy, in that he did heretofore, to wit, on the

day of -leaving the blank space of the statement for the act of bankruptcy alleged to have been committed.

Now it seems to me that when the court wrote general order No. 8 it must have intended that, where a partner of a firm refuses to join in the petition with the other partners or partner, the petition must contain the statement of facts contained in form No. 3 wherein is a charge of insolvency and the commission of an act of bankruptcy, which such nonassenting partner may deny.

If the proceeding becomes an involuntary one as to the partnership by virtue of one of the partners refusing to join, as held in Medsker v. Bonebrake, then it follows that the allegations in the involuntary form should be used, and this is made more manifest by the language of order 8 giving such nonassenting partner the right to resist the prayer in the same manner as if the petition had been filed by a creditor, and to make all defenses which any debtor proceeded against is entitled to make, and specifically giving such nonassenting partner the right to prove, if he can, that the partnership is not insolvent or has not committed an act of bankruptcy.

Bearing in mind that proof by 'a debtor proceeded against that he is not insolvent or that he has not committed an act of bankruptcy is a complete defense, it necessarily follows that order 8 puts the partnership in the same position when there is a nonassenting partner.

The language used can mean nothing else as I see it.

The petition against a debtor in an involuntary proceeding must allege both insolvency and an act of bankruptcy.

The commission of an act of bankruptcy is indispensable to jurisdiction in an involuntary proceeding. In re Meyer, 98 Fed. 979, 39 C. C. A. 368.

If order 8 defines the petitioning partner's petition as an involuntary one as to the firm, it is necessary that it should contain all the essential allegations of an involuntary petition, including the allegations of insolvency and an act of bankruptcy.

If the proceeding against the firm is involuntary, then it must be conceded that the petitioning partner is required to make the same allegations that the petitioning creditor would make against the same partnership.

So construed, general order 8 is in harmony with the forms and no inconsistency is found. There is then no requirement that the nonassenting partner may disprove "that which the petitioning partner need not allege." But there is a requirement that the petitioning partner must allege that which the nonassenting partner may deny.

It is now agreed that the nonassenting partner as an individual cannot be declared bankrupt unless an act of bankruptcy is alleged to have been committed by him. Junck v. Balthazard (D. C.) 169 Fed. 481; In re Ceballos & Co. (D. Č.) 161 Fed. 449.

Conceding the partnership is a separate entity which may be de

clared bankrupt, I ask why the same rule which is applied to the nonassenting partner is not applied to the partnership?

The reading of order 8 will show that it does not limit the right of the nonassenting partner to defend as to personal charges; on the contrary, it permits him “to make proof, if he can, that the partnership is not insolvent or has not committed an act of bankruptcy."

Now, in the face of this language, it must be conceded that if such nonassenting partner can prove either that the firm was not insolvent or had not committed an act of bankruptcy, no adjudication can be made against the firm.

Now if order 8 makes no distinction, as a ground for denying adjudication against the partnership, between insolvency and an act of bankruptcy committed by the firm, then I ask where did the courts get authority to make such a distinction?

The rule does not stop here, because after enumerating these two express grounds which the nonassenting partner may show, it then proceeds to say that he may “make all defenses which any debtor proceeded against is entitled to take by the provisions of the act."

It will be conceded that, where the debtor is proceeded against, the allegations used in form No. 3 must be stated in the petition, and further that if proof is made that the debtor was not insolvent, or that he had not committed an act of bankruptcy, no adjudication can be made.

Now rule 8 says that the nonassenting partner shall be entitled to resist the prayer of the petition in the same manner as if the petition had been filed by a creditor of the partnership, and notice shall be given him in the same manner as of a debtor petitioned against, and that it shall be open to him to make all defenses which any debtor proceeded against is entitled to make: now if in the proceedings against the debtor it is necessary to allege insolvency and an act of bankruptcy both, and the debtor can defeat this proceeding by disproving either one of these allegations, how can it be contended that the nonassenting partner is proceeded against in the same way, and is given the same defenses which the debtor has, if you deprive such nonassenting partner of either of these rights which are given to the debtor?

I have seen no case in which it has been undertaken to explain this difference between the right given the nonassenting partner and the right given the debtor according to the rulings of the courts I am criticizing. How can I draw a distinction between the manner in which the debtor may resist a creditor, and the manner in which a nonassenting partner may resist the copartner, when the Supreme Court says the rights and defenses of each are the same?

To draw such a distinction or to refuse to follow the declaration of the rule so plainly laid down by the Supreme Court seems to me necessarily to say that the court either did not know what it was writing when it wrote rule 8, or that it wrote what it did not intend to say.

Construing rule 8 as requiring the petitioning partner to proceed as an involuntary creditor, and so, to use the allegations contained in form 3 enables me to give effect to every provision contained in rule

(274 F.) 8 and makes it also consistent with the forms. It is the only way I can see by which the nonassenting partner can be given the same rights as are given to a debtor proceeded against.

It may be said this construction of rule 8 would require a hybrid petition, voluntary as to petitioner and involuntary as to the partnership. It would be not more hybrid than it is now under the decisions as to the nonassenting partner.

The only effect would be to put the partnership in the same involuntary class as a nonassenting partner.

There was much discussion, shortly after the act of 1898 was passed, as to whether one partner could get a discharge from the partnership debts without an adjudication of the partnership as a separate entity. Some courts held it could not be done; others, that it could.

The ruling in Re Laughlin (D. C.) 96 Fed. 589, where it is held that a partner could get a discharge from the partnership debts without an adjudication of the partnership and the method of procedure laid down to accomplish this, seems to me conclusive on that question and eliminates the only hardship I can see in the construction I have placed upon rule 8.

A decree will therefore be entered sustaining the demurrer to the petition.

GORHAM MFG. CO. v. TRAVIS, State Comptroller of New York, et al. (District Court, S. D. New York. August 11, 1921.)

No. E 16-232. 1. Taxation Cm 608 (9)—Review of a tax assessment conditional on deposit

of the tax which is not recoverable held not to afford adequate remedy at law.

Where a state tax law requires the taxpayer to deposit the amount of his tax as a condition to a review of his assessment by the courts, and contains no provision for return of the deposit, which under the decision of the state courts cannot be recovered back, he is without adequate remedy at law and may maintain a suit in equity to restrain collection of

a tax claimed to be illegal. 2. Taxation Cw13—State cannot tax foreign corporation on outside assets.

A state in taxing local revenue or local property of a foreign corporation may not include anything outside the state which cannot be said to con

tribute any part of its value to local assets. 3. Constitutional law w283_Taxation Om37—New York statute taxing in

como of foreign corporations held valid.

New York Tax Law, $8 208 to 2191, providing that a foreign corporation for the privilege of doing business in the state shall pay a tax of 3 per cent. on its local income, to be determined by a consideration of the relative value of its entire property and accounts receivable and of its property and accounts receivable in the state, but which authorizes the corporation to present, and the assessing commission to consider, other relevant facts, held to provide a rule of allocation prima facie valid, and not

unconstitutional as taking property without due process. 4. Taxation Cw608 (2) -Collection of tax will not be enjoined for error in

assessment which might have been corrected on revision.

A foreign corporation held not entitled to enjoin collection of a state tax on its income on the ground of an error in the assessment of the For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

tax, and also that a part of the income taxed was derived from a source entirely outside the state and not taxable therein, where such fact did not appear from complainant's returns to the tax commission, and where it was authorized by the statute, on notice of the assessment to apply for a revision, when the error and the facts as to the sources of income could

have been shown, but did not do so. 5. Taxation Ow376 (1)-State in taxing income of corporation not required to

deduct federal tax.

A state, in taxing the income of a corporation, foreign or domestic, is not required to deduct from such income the tax paid therefrom to the United States.

In Equity. Suit by the Gorham Manufacturing Company against Eugene M. Travis, Comptroller, and Charles D. Newton, Attorney General of the State of New York. Decree for defendants.

The case comes up upon final hearing on a bill in equity by a foreign corporation to enjoin the Comptroller aud Attorney General of New York from enforcing a franchise tax levied in 1918. The plaintiff is a silversmith, a corporation organized in Rhode Island, where all its manufacturing is done; but it has two shops and keeps a considerable store of goods, largely samples, in New York.

Title ya of the New York Tax Law (Consol. Laws, c. 60) provides that such a corporation must pay a tax of 3 per cent. upon its local income for the privilege of doing business in the state. Section 209. This income is to be "presumably” (section 209) taken at the return made by the corporation on its federal income taxes, and is to be allocated in accordance with a forinula set forth in section 214, following the facts stated by the foreign corporation in a return required by section 211. This formula divides the income in a proportion determined by the relative values of the sum of the corporation's property everywhere and of the sum in New York. Each sum is made up of the value of its real and personal property, of its accounts receivable for sales and "services,” and of the shares in other corporations owned by it. The taxpayer is given the right to a hearing after notice of assessment (section 218), at which the assessors may reassess the tax "according to law and the facts,” and to a review by certiorari in the Supreme Court (section 219). As a condition to certiorari, however, he must “deposit" with the comptroller the amount of the tax. A penalty of 10 per cent. and 1 per cent. a month is imposed upon defaults.

The plaintiff filed two returns in 1918, giving all the facts required, and claiming a deduction for the federal taxes it had paid. The Tax Commission of New York, the statutory assessors, assessed and levied the tax ignoring the claim for deduction, and gave the plaintiff notice on July 16, 1919. It asked for no hearing, under section 218, but filed this bill on October 7, 1919. The plaintiff now claims that the federal taxes paid should have been deducted; that the statute is unconstitutional; that its income returned to the United States for the year in question included its profits upon its munitions business, which was wholly local to Rhode Island, and was disconnected from its silverware business; and that the assessment violated the statute.

Robert C. Beatty, of New York City, for plaintiff.
C. T. Dawes, of Albany, N. Y., for defendants.

LEARNED HAND, District Judge (after stating the facts as above). [1] The first question is of jurisdiction in equity. I should have thought the provisions for revision by the Tax Commission and certiorari to the Supreme Court adequate remedies at law, Indiana Mfg. Co. v. Koehne, 188 U. S. 681, 23 Sup. Ct. 452, 47 L. Ed. 651;

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

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